Graham Reid and Katherine Rees look at retainers, risk and the scope of a solicitor’s duty


The subliminal message of most solicitors’ marketing can be reduced to a single phrase: we know all about you – and we’re great lawyers too. These days everyone wants to be a results-oriented, business-minded and, above all, client-focused solicitor.

Fortunately for our professional indemnity insurers, we are not usually judged by our marketing brochures. Solicitors generally do not guarantee outcomes, they do not have to give pure business advice and they are not required to second-guess their client’s every thought. This reflects the limited nature of the solicitor’s core promise – it is no more, and no less, than to act with reasonable skill and care when complying with a client’s instructions.



Over the years the courts have tried to explain what is meant by ‘reasonable skill and care’. The starting-point is that we must behave as reasonably competent solicitors would, having regard to the normal standards of the profession.



What are these ‘normal standards’? They are the standards of the profession as a whole, not those of a particularly meticulous or conscientious practitioner. However, even a universally adopted practice is not proof against a finding of negligence if it exposes a client to an unjustifiable risk.



Solicitors are allowed errors of judgment, but not if the error is one that no reasonably well-informed and competent practitioner would have made. And remember, these are still high standards. We hold ourselves out as practising a skilled and exacting profession, and our regulator is right to insist that we provide ‘a good standard of service’ to our clients (Solicitors Code of Conduct 2007, rule 1.05).



Do these normal standards vary according to the nature of the firm? There are some signs that they do. In one recent decision, a judge said it would be absurd to judge a well-known City firm by the same standard as might apply to a small country firm. In another case, the judge drew a contrast between the scope of duty owed by the lawyers in that case, whom he described as having sufficient experience to produce adequate documentation and give competent advice on problems that normally arise in corporate transactions, and the wider duty that might be owed by a hypothetical dynamic, corporate lawyer who took on a role very close to his client.



Despite these judicial comments, it is difficult to accept that the standards by which solicitors are judged should vary according to the size and nature of the firm and the skills they profess to have, let alone their personal dynamism.



The nature of the task at hand, and the approach of the entire profession to it, should determine the standards. The bar is not lowered because a solicitor lacks experience or resources; conversely, it does not rise because a solicitor is described as a ‘leading practitioner’.



This article has looked at how the standards of the profession mould the scope of a solicitor’s duty. However, the most important determinants of duty come from outside – they are the instructions and personal characteristics of the client. Clearly a solicitor’s duty must cover the width of the instructions given. Sometimes, it must go further. For example, where the client’s instructions are ambiguous, a solicitor may be required to seek clarification.



What about volunteering advice? Here the line is difficult to draw. Some risks may be so obvious that a solicitor has to raise them even if they fall outside the strict limits of the retainer. Likewise, where a solicitor has non-confidential information that is clearly of potential significance to the client, then he may be expected to pass it on.



But where the risks are purely commercial and do not arise from any legal complexity, then there may be no obligation to advise on them. Likewise, where a client, in full command of his faculties and apparently aware of what he is doing, asks a solicitor to implement a transaction, then the solicitor will usually be under no obligation to offer unsought advice about its wisdom.



The scope of a solicitor’s duty must also reflect the nature of the client. Although there is relatively little judicial guidance on the area, the unsophisticated client will usually require particularly detailed and clear explanations of advice, and it is good practice to provide this in writing.



Sophisticated clients may require less of an explanation of the basis for advice and more can be expected of their general knowledge of commercial matters. However, for a solicitor to advise on a transaction he must understand it – especially where it has been reduced to writing before his involvement – and that in turn may require him to probe the degree to which even an apparently sophisticated client understands what is going on.



Also, remember that sophisticated clients may use lawyers not so much for the legal expertise they bring to the matter but rather as a safety net. An experienced commercial landlord may know all about the pros and cons of granting consent to assign to a tenant, but he may still wish to instruct lawyers on such a transaction, on the basis that an extra pair of eyes may catch something that the landlord has failed to spot.



So much for the solicitor’s duties; what about the risks of retainers? There are no hard and fast rules here, but our experience suggests that some types of retainers are more likely to go wrong than others.



For example, it is simply asking for trouble to act on a matter that is outside your personal comfort zone of experience. The same applies where an inexperienced and under-supervised fee-earner is allowed to take the lead on a matter.



Particular dangers occur where other professionals, such as accountants, are involved in a transaction. The risk arises where the lines of communication and demarcation of responsibilities are blurred. The result is that no one notices the client has not received the necessary advice. The solution is to ensure that everyone is constantly kept informed of the division of labour.



The one-man company, and the family company, might not be obvious sources of risk, but they have proved fertile ground for negligence claims. Here the risk arises from blurred distinctions between corporate and personal interests. For example, when advising the company on entering into a loan, does the solicitor have to look after the owner’s interests as proposed guarantor of the borrowing? The answer is not always obvious.



A good way to recognise risky retainers is to pool your firm’s collective expertise. Everyone has a tale to tell of the nightmare client. Prepare a checklist of ‘danger criteria’, drawing on the experience of all fee-earners. What do the trends in your firm’s complaints record tell you in this regard? What about your claims record?



Fortunately, there are also ways of reducing risk in a solicitor’s retainer. First and foremost, seek to know your clients, understand their instructions and record them in the retainer letter. If the instructions change, then make a further note and ask the client to agree it. If something is identified as being outside the scope of the retainer, make sure the client realises this. If other professionals are involved, make sure they see your written instructions, and vice versa.



Always keep in mind, and where necessary make clear to the client, the distinction between business and legal advice. Solicitors are lawyers, not business people. It may help to market your firm by demonstrating an in-depth knowledge of the client’s business, but do not let that fool anyone into thinking that it is your firm’s role to give business advice.



Do not assume the client understands everything. Test the client’s assumptions, and your own. Just because a client is sophisticated this does not mean you are relieved of your obligation to watch out for, and advise on, legal matters that ought to be well-known to the client.



Flag up obvious risks if you know about them – it may be not your job to advise a solution to them (unless instructed) but as a conduit of information you may be required to communicate their existence to the client.



A pro-active method of risk reduction is to negotiate a liability cap. If the accountants can do it, then so can solicitors. But always remember that you must be able to demonstrate that the cap was truly negotiated (or at least the client was given the opportunity to do so) and the size of the cap must be capable of rational justification in court. Arbitrarily chosen multiples of fees may not be good enough.



And finally, remember that the most important moment in a retainer is at the beginning. This is your best opportunity to record and constrain the scope of your retainer. It is the only time when you can try to negotiate a liability cap. It is when the techniques of risk management can bring the greatest rewards for the least effort.



Graham Reid is an employed barrister and Katherine Rees a partner in the lawyers’ liability group at City firm Reynolds Porter Chamberlain